Comparing the paper industry with other manufacturing industries reveals why ERP implementations are often challenging

Idiosyncracies of Papermaking Create Problematic ERP Installations

Because of the poor performance of the paper industry, there has been a rush to adopt new business processes, techniques, and software from other manufacturing industries. Scrutiny of some of these efforts reveals decidedly mixed results, leading to a search for the source of the difficulties. Has it been poor implementation? Were the new practices flawed from the beginning? Or, is the paper industry really indeed different?

One area in which paper manufacturers are diligently trying to apply techniques with roots in other industries is enterprise resource planning (ERP) software and systems. ERP system vendors such as SAP, Baan, J.D. Edwards, Oracle, and others have suites of applications that can address the financial, manufacturing, and purchasing needs of many manufacturers. The selling point of these systems is that a single, integrated computing and software environment can cover many, if not all, of the application needs of the manufacturer. This can simplify the company’s systems infrastructure and allow sharing of data between functional disciplines.

While many manufacturing industries have long relationships with ERP systems and vendors, the paper industry has, in general, only attempted the implementation of these systems within the past few years. Many paper companies have ongoing ERP system implementations. Though success has been obtained using ERP systems for many financial and administrative applications, the use of these systems for most order fulfillment and manufacturing tasks has proven problematic for paper manufacturers.

There are many ideas, concepts, techniques, and practices that the paper industry can beneficially apply from other industries, but they must be incorporated with the big picture in mind. ERP software must be evaluated on the same basis. If the differences between environments are not understood, grasping at ideas and techniques that are popular elsewhere will lead to disappointment.

By understanding what is different between paper manufacturing and other manufacturing settings, there is also a much-improved chance of recognizing the likely impact of any new method or technique. This article explores these differences in terms of capacity, quality, and inventory management, as well as the manufacturing environment and product standardization. In each of these areas, the difficulties for ERP systems within the paper industry are described.

DIFFERENT PRACTICES. While there are lots of good ideas from outside the paper industry, many “best” practices and techniques prove quite elusive without some grounding in the originating manufacturing and service environments. A better understanding of where the paper industry is similar and different from other types of manufacturing could help determine which new practices and ideas hold the most promise. Then, evaluation of business practices contained in ERP software could proceed on a more firm foundation.

A good source of information regarding production management techniques is the APICS (American Production and Inventory Control Society) organization. APICS educational offerings can provide a good grounding in the production and resource management techniques commonly applied by manufacturers today. More importantly, many consultants, business process experts, and vendors familiar with other industries approach assignments in the paper industry with this perspective in mind. Many software vendors have designed and built their systems around these techniques as well.

While it is hard to group all non-paper manufacturers into an “other” category, it is possible to draw some contrasts between paper manufacturing and practices and those of many other manufacturers (Table 1).

These differences, while not universally applicable to all types of manufacturers, point out some fundamentally different business and management practices within the paper industry. Once these differences are understood, the challenge is in recognizing which business practices can and should be incorporated into the paper manufacturing and service environment without sacrificing some of the very necessary and appropriate techniques currently in place.

The various application areas addressed by ERP systems can be grouped into areas of good or questionable/poor fit for paper manufacturers (Table 2).

Projects in questionable or poor fit areas typically experience cost overruns, schedule slippage, heavy unplanned customization, or outright cancellation. Failure to understand the inherent differences between the needs of paper manufacturers and the needs of manufacturers for which these systems were designed is the core issue with these projects. Differences between manufacturing and service environments often become quite apparent when analyzing or implementing ERP software.

CAPACITY MANAGEMENT. It is no secret that the paper industry is unusually capital intensive. What is less understood is how this capital intensity manifests itself in the management and customer service practices used by the paper industry.

The paper industry focuses on managing capacity first, with purchasing and sales decisions focused on the capacity commitment. The block schedule, which is commonly used by paper companies to manage machine capacity and quote delivery dates, is a foreign technique in most manufacturing settings. The emphasis on maintenance efforts, machine efficiencies, trim loss, shrinkage, and finishing efficiencies are all centered on managing and optimizing the use of capacity. Many other manufacturers focus first on materials acquisition, and then make capacity or schedule adjustments based on materials availability. Whether the focus is first on capacity or materials management governs many of the organization’s planning, service, and management practices.

The major ERP packages determine product availability based on finished goods inventory or on the bill of materials, materials inventory, manufacturing routing steps, and associated lead times. These ERP systems only consider capacity after the fact, focusing instead on materials flow. Capacity or resource adjustments are then recommended based on overload/ underload situations, after orders have been taken.

ERP packages also do not incorporate the techniques or practices that the paper industry utilizes to ensure efficient use of its capital resources, such as the block schedule and trimming algorithms. ERP systems can provide tighter control over raw materials flow than is practiced by most paper companies, but at the expense of capacity management.

MANUFACTURING ENVIRONMENT. The paper manufacturing environment is unique in that it is part continuous process (before the paper machine dry end) and part disassembly process (after the machine dry end). This can be contrasted with many manufacturing environments that are geared towards procurement, processing, and/or fabrication of components, with final assembly of components into an end product or item. Even many process manufacturing environments, which bear similarities to the pulping and wet end processes, do not face the disassembly common in the paper manufacturing functions of slitting, rewinding, and sheeting. The manufacturing environment itself exerts a strong influence over management practices, scheduling practices, and the type of work done by many individuals in the organization.

ERP systems in general do not support the schedules and manufacturing processes found in the typical paper mill. ERP systems are item based, rather than customer order based, and are not designed to manage production of multiple orders at the same time on the same equipment, which is a common practice in paper manufacturing.

Product tracking applications that model the mill’s production and finishing capabilities are also foreign to the ERP application suite. Order status in the paper manufacturing environment—where an order may be in various stages of completion—is also difficult to assess through an ERP system.

QUALITY MANAGEMENT. Related to the manufacturing environment, but also strongly influenced by customer needs, is the area of quality management. Quality management for many manufacturers is “binary”—the component or item is either acceptable, or it is not. If acceptable, the item can generally be sold to any customer.

However, within many segments of the paper industry, quality is much more relative, and acceptance is based on the end use or converting/printing specifications established for the end product. Quality requirements driven by end use have necessitated the usage of customer, consignee, and end use specifications throughout the manufacturing and distribution process. These requirements are reflected in grade differentiation, customer-specific quality tolerances, and in a host of attributes associated with the typical customer order.

For instance, some kraft and newsprint mills disposition rolls at the winder to alternate customers or grades based on quality test values. Some mill systems are even sophisticated enough to assist in the dispositioning of rolls at the winder based on customer quality specifications. Also, roll defects such as an offset core may determine the further processing of a roll, but the roll can still be used in fulfilling the customer’s order. These practices are all designed to provide the customer, consignee, and end user with the paper quality they require, and thus are necessary in an environment where product variability occurs. All, however, can prove difficult for ERP systems that prefer to make products to stock under generic work orders.

Also important and heavily influenced by the disassembly process after the dry end is quality data tracking. In paper mills, the use of unique roll, pallet, and segment identifiers facilitates this process and allows tracking of an end product back to its manufacture on the paper machine. Other manufacturers have centered strong quality needs around knowing the lot of manufacture and the components and suppliers involved, but the tracking of quality information through a disassembly process is not the same.

ERP systems can address quality tracking and roll identification needs through the use of lot control, but it is difficult to manage the parent/child relationships generated in the finishing process. Use of lot control also entails additional processing that may make the system complicated and burdensome to use. For example, use of lots may result in creation of a separate order line item for each individual roll shipped under the customer order, which complicates customer service and inventory management.

PRODUCT STANDARDIZATION. Even though paper is often considered a commodity, in large measure the paper industry attempts to differentiate its products and cater to individual customer requests and needs. There is often a high customization component to a typical customer order.

Data that is typically input with the customer order includes product, dimension, and packaging attributes. In some cases, customers accept standard products from inventory, and some segments of the industry are heavily make-to-stock. However, in large measure, customer orders continue to be filled on a made-to-order, manufacturing basis. This is in contrast with many industries where the rule is to produce the same item for sale to many different customers. In these cases, forecasting sales of each item becomes critical to production plans, especially when there are long lead times associated with procurement or fabrication of components.

ERP systems are, in general, designed for make-to-stock environments. A make-to-stock process leads to development of forecasts at the stocked-item level, rather than at the grade or grade/basis weight level commonly represented in a paper machine schedule. The paper manufacturer can often define higher-level items, such as a grade or grade/basis combination, that allow for more effective forecasts. Also, in make-to-stock environments, product attributes are defined as part of the stocked item and not when a customer order is taken, as is currently paper industry practice.

ERP vendors have long known about the “order attribute” problem with defining attributes at time of order entry, and some ERP packages can address this through use of software called a product configurator. However, use of a product configurator often makes inventory management and visibility much more difficult for the paper manufacturer.

INVENTORY MANAGEMENT. Inventory management practices also differ significantly between the paper industry and many other manufacturing industries. In this area, there are fundamental differences related to use of capacity, sales practices, quality, and materials flows. The practice of billing by roll attributes such as actual weight or area, or pallet attributes such as reams per skid, is unique in that many companies base their billing on the product itself, without differentiating between individual units of that product.

The need to differentiate between individual units also causes paper manufacturers to produce against customer orders, as opposed to the generic work orders often seen in many manufacturing settings. Quality information and customer needs for paper products can also lead to reclassifications, downgrades, upgrades, and transfers between grades.This is a foreign concept for many industries, since once an end item is finished, it is not turned into something else later.

Work-in-process (WIP) inventory management is also more complicated in many other industries than it is in the paper industry, given the large numbers of separate parts handled and the criticality of each part in the assembly process. While this is an area many mills could manage more effectively, WIP does not get the same attention as elsewhere, since process flows are usually straightforward and downstream equipment is sized with maintaining a flow of product in mind. The nature of an assembly process itself necessitates close scrutiny of WIP, since availability of a single part can jeopardize the entire production schedule.

ERP systems have difficulty supporting many paper industry inventory management practices. Where paper products are made-to-stock, managed by item numbers, and billed on a nominal basis, ERP software is certainly a better fit. This is the case for many converted paper products. However, for roll- based and folio sheet production, there are many inventory management hurdles to overcome in using ERP software.

Paul W. Lail is a business unit consultant with Champion International, Hamilton, Ohio. He holds a CFPIM (Certified Fellow in Production and Inventory Management) from APICS. Mr. Lail can be reached by email at lailp@champint.com.